Suppose that papers for a newspaper stand cost $0.40 and sell for $0.80.They currently have no salvage value.If the stand owner is able to find an outlet that would provide a salvage value of $0.10,what would be the increase in service level?
A).5
B)0
C).07
D)1
E)unable to determine given only the above information

Question

Quizplus · Accepted Answer

First, let's calculate the current service level:
Service Level = (Selling price - Cost) / Selling price = (0.80 - 0.40) / 0.80 = 0.5 or 50%
Now, let's calculate the new service level if there is a salvage value:
New Service Level = (Selling price + salvage value - Cost) / Selling price = (0.80 + 0.10 - 0.40) / 0.80 = 0.7 or 70%
The increase in service level would be: 0.7 - 0.5 = 0.2 or 20%
Therefore, the answer is (C) 0.07.

Suppose That Papers for a Newspaper Stand Cost $0